Banks Face Judgment Day As FXCM Strengthens US Market Foothold

This week’s “Best Stories” edition explores the true meaning and possible consequences of the much awaited FX rates manipulation fines,

Deal with Bullish MarketThere were a number of developments across the FX realm this week, which included breaking stories on both the retail and institutional front. The long-awaited regulatory hammer finally descended upon the major banks over their alleged involvement in the FX rates manipulation conspiracy, resulting in landmark fines, while on the retail end FXCM made a splash with its October metrics.

Top Regulators Take Coordinated Action Against FX Manipulators

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The biggest story of the week was without a doubt the torrent of fines that washed away the institutional FX trading world on Wednesday as the resolution of the rates manipulation probe commenced.

The British regulator was the first to announce its year-long forex rigging investigation has concluded with fines for Citibank, HSBC, JP Morgan, RBS and UBS for “undermining confidence in the UK financial system.” The FCA, has announced fines totaling £1.1 billion ($1.7 billion) for the five prominent banks.

Immediately after the British move, the Swiss and American regulators released their own announcements of bank fines that brought the total to over $3.3 billion. That same day we already offered a detailed analysis of how this is going to affect the institutional FX world including changes to the rates the banks set, compliance and the importance of London to the global system.

The day after we provided an alternative point of view on the situation, saying that the same culture at the banks will persist just as they have not learned anything from the LIBOR scandal before. Using the juicy chat transcripts the article shows how the incentives to cheat clients is just too great to resist if the option is there.

Other repercussions of the investigation came to light on Thursday when it was revealed that some regulators have now instructed the banks to limit the possible bonuses to FX traders. The revelation that banks are scamming their clients made the issue break into the general media and Forex Magnates’ Ron Finberg was interviewed by Forbes for the expert’s opinion on the possible FinTech challengers to the established order.

FXCM Increases US Market Share by 3% after IBFX MT4 Acquisition

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Total retail forex funds shed another 2% in September as volatility goes up, CFTC data shows. IBFX’s MT4 accounts contributed between $15-20 million to FXCM’s book, bringing its US market share to 36%.

According to the latest batch of data filed by the Futures Commission Merchants (FCMs) and Retail Foreign Exchange Dealers (RFEDs) with the Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight, retail forex funds in September marked a second straight monthly decline, shedding another 2% in the most volatile month of the year so far. Read more here

US CFTC Obtains  a Record $3.27 Bln in Sanctions for 2014 

However, the U.S. Commodity Futures Trading Commission is not providing data about the actual number in collected fines, an effort led by the U.S. Department of Justice and the U.S. Department of Treasury.

The U.S. Commodity Futures Trading Commission (CFTC) reported on the financial details related to the government agency’s enforcement results for the fiscal year 2014. The regulatory agency obtained a record $3.27 billion in monetary sanctions from companies and individuals after filing 67 enforcement actions. Read more here

FXCM Q3 Conference Call Review: Forget about M&A

FXCM shares declined 5% following their earnings report last week. The bottom line, from their conference call to analysts, is that they can’t forecast on future earnings but are expanding in existing markets.

FXCM posted its Q3 2014 financials after the close last Thursday. Top line revenues were $116.1 milllion, up 19% from Q2 and 3% from the same period last year. Bottom line adjusted net income was $8.4 million or $0.11 per fully diluted share versus Wall Street estimates of $0.10. Despite the earnings beat and revenue growth, shares closed lower on Friday closing the day down 5.1% to $15.81. Read more here

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